Wells Fargo: Hawkish Risks From Dot Plot

In one of the first sell-side previews of the June FOMC meeting, Wells Fargo writes that with a 50bp hike already assured and priced in, focus will be on the latest Dot Plot.

• It's "all but assured" the Dot Plot will shift upward: markets are priced for a 2.75-3.00% end-2022 rate (vs 1.875% median in the March Dot Plot). While Wells Fargo expects the new median dot will match that market outlook, they see risks the median will be above that level, which would see a hawkish rate market reaction.
• Likewise, they see hawkish risks from any signal of additional tightening throughout 2023. Wells Fargo sees the 2023 median dot at 3.375% (vs 2.75% in the March Dot Plot, and 2.75-3.00% market pricing). "This would signal more tightening at the margin while also striking a balance between some of the more hawkish and dovish FOMC participants."
• For 2024, the median is set to be largely unchanged from March's 2.75%, suggesting the FOMC will head back toward neutral amid cooling inflation.
• In the press conference, Powell is set to take a "balanced" tone, reflecting a mix of FOMC views from those who are on board with taking rates significantly above neutral this year, and those who want a more measured approach.